Martin Marietta In Talks To Buy Texas Industries

Martin Marietta Materials, Inc. (NYSE:MLM) is in talks to buy Texas Industries, Inc. (NYSE:TXI), according to anonymous sources said to be close to the deal, report Aaron Kirchfeld, David Welch and Thomas Black for Bloomberg. We could have official details on the deal sometime next week, but it could be an all-stock transaction (though the sources said there have been previous snags and it’s still possible that the whole thing falls through).

Southeastern Asset Management Inc. and NNS Holding (Nassef Sawiris’ investment vehicle) own 51% of Texas Industries, Inc. (NYSE:TXI) between them, and reportedly have wanted to exit the company for some time, so the deal with Martin Marietta Materials, Inc. (NYSE:MLM) could be a way for them to get rid of their stakes, though the rumors about the deal don’t specify exactly who is involved.

Texas Industries worth an estimated $2 billion

Texas Industries, Inc. (NYSE:TXI), with an estimated market value of $2 billion, has been working with Citigroup to find a buyer, and since Martin Marietta Materials, Inc. (NYSE:MLM) is the nations’ second-largest producer of sand and gravel used in construction, acquiring Texas Industries and jump-starting its entry into the cement market does seem like a natural fit. MLM already produces many of the inputs that Texas Industries needs to make cement, so there could be lots of opportunities for improving efficiency if the two merge.

Martin Marietta seeks vertical integration during housing recovery

Texas Industries, Inc. (NYSE:TXI)’s investors must be pleased, since it will give them a way to cash out of a struggling company (or stay invested in a growing company), but the market apparently doesn’t think the move is wise for Martin Marietta Materials, Inc. (NYSE:MLM). Texas Industries stock price rose about 7% on the news, while MLM stock fell about 4%.

On the surface, vertically integrating in the midst of a housing and construction recovery seems like a smart move. Texas Industries has two cement plants in California and another in Texas with a total annual production of 6.8 million tons of cement, but the company has been operating at a loss for most of the last five years, and investors may be worried about how Martin Marietta Materials, Inc. (NYSE:MLM) will turn those facilities around. Even if vertical integration is the right move, investors may not be convinced that this is the right company.